Newbie's Question on Futures

ngchowdhury · #1 9th May 2005, 12:03 PM

Hi,
I am totally new to derivative market and trying to understand speculative nature of futures, and have few questions as follows:

1. Say current NIFTY Index is at 1992 and 26-MAY-2005 Futures at Rs.1978. Assuming I already have NIFTY Future of same expiry, When selling the NIFTY Futures, it is traded at Rs.1990 and spot NIFTY Index is at 1992.What price will I be paid? Is it (1990 – 1978) * Market lot OR (1992 – 1978)* Market lot ?

2. At what minimum time I can sell them(Future)? Say for stocks delivery I need T+2 days to come into my account, before which I cant sell in normal mode.

3. Can I sell any future at any time ? say I have NIFTY 28-JUL-2005 Futures, can I square off even today in May ?

It looks like Futures are good tool for speculation than just simple margin(day) trading where I have quite a long time frame to avoid any loss and also I need block only margin amount. Please comment.

Thanks
Nirmal

ivanboesky · #2 9th May 2005, 01:40 PM

Hi Nirmal,

1. If you sell the Nifty futures before expiry, your profit/ loss on the trade will be the difference between your buy and sell price. Your profit/ loss is not affected by the Nifty Index. However, if you let the Nifty futures expire, your proft/ loss will be equal to the difference between your buy price and the Nifty Index. This is coz the Nifty futures converge/ are forced to converge to the Nifty index at expiry.

2. You can square off your trade on the same day if you want to. You do not need to wait for a second, if you want to square off your existing position.

3. Yes, you can square off your positions at any time before expiry.

Again, yes, you are right. However, what you need to recognize that futures trading is leveraged, and if you get your leveraging ratio wrong, you can get wiped out before you know it. Read the thread on risk of ruin... I've seen the Nifty move 15 points on a single tick. If you think you can take that kind of a loss, then day trading futures is much better than day trading stocks. Better liquidity, lower impact costs, but beware of the leverage.

All the best!!

sachin.sonu · #3 9th December 2007, 09:28 PM

1)What is the Spot Price?
2)What is the Difference between Spot Price and Nifty Future Price?
3) If we are in Loss and don't have Enough Margin to maintain Position, will the Contract be get sell automatically, and the amount returned will be Market Lots (Buy - Sell Price(Lowerthan Buy Price))

I have just started reading about futures, Seniors Members and Future MAsters Please answer this silly questions..

santoshdts · #4 10th December 2007, 12:01 AM

Quote:

Originally Posted by sachin.sonu

1)What is the Spot Price?
2)What is the Difference between Spot Price and Nifty Future Price?
3) If we are in Loss and don't have Enough Margin to maintain Position, will the Contract be get sell automatically, and the amount returned will be Market Lots (Buy - Sell Price(Lowerthan Buy Price))

I have just started reading about futures, Seniors Members and Future MAsters Please answer this silly questions..

MY GOD A reply After 2 Years.................

marcus · #5 10th December 2007, 04:46 AM

there's no such thing as a silly question, a question is simply a question thats all.

1)Spot is the price of the security in the cash segment
2)The difference between spot and futures price is called the cost of carry, theoretically it consists of the interest rate time value till expiry and any expected corporate action, the futures price may be above the spot (premium) or below the spot (discount), on expiry both prices converge.
3)Futures transactions are settled on a T+1 basis and you need to maintain a minimum margin at all times, in ICICI it is currently 10% for nifty futures (but lower for spread trading in which its currently 2%) if you do not maintain this you will get a margin call and the broker may or my not square off your position it depends on your relationship with your broker. For large brokers like ICICI I don't think they would give you a margin call, I assume they will automatically square off your position. I'm not very sure though, I've never fallen short.

y2j826 · #6 10th December 2007, 10:20 AM

After 2 years the thread suddenly becomes active . .

Anyways thats a good information for newbie's

But FnO trade is always risky if u do it without any cautious, so avoid it if you are new trader

satya.bolla · #7 10th December 2007, 10:33 AM

Where we get LIVE derivatives charts of NSE other than nseindia.com

sachin.sonu · #8 11th December 2007, 11:45 PM

Quote:

Originally Posted by marcus

there's no such thing as a silly question, a question is simply a question thats all.

1)Spot is the price of the security in the cash segment
2)The difference between spot and futures price is called the cost of carry, theoretically it consists of the interest rate time value till expiry and any expected corporate action, the futures price may be above the spot (premium) or below the spot (discount), on expiry both prices converge.
3)Futures transactions are settled on a T+1 basis and you need to maintain a minimum margin at all times, in ICICI it is currently 10% for nifty futures (but lower for spread trading in which its currently 2%) if you do not maintain this you will get a margin call and the broker may or my not square off your position it depends on your relationship with your broker. For large brokers like ICICI I don't think they would give you a margin call, I assume they will automatically square off your position. I'm not very sure though, I've never fallen short.

Thanks Marcus .. Could you tell me what is margin call ??

marcus · #9 14th December 2007, 02:30 AM

its when you fall short of the necessary margin and your broker calles you up asing for a cheque to cover the same

marcus · #10 14th December 2007, 02:34 AM

a better explanation can be found here http://www.investopedia.com/terms/m/margincall.asp

Similar Threads for: Newbie's Question on Futures
Thread	Thread Starter	Forum	Replies	Last Post
Crude Oil Futures and Crude Oil Options	TATrader	Energy	2	11th October 2007 09:06 PM
Futures Or Options ?	just4trades	Derivatives	49	28th May 2006 08:30 AM
Tax Rebates for Commodities Futures Trading?	TradersEdge	Commodities	5	4th October 2005 12:42 AM
Indian Gold Futures	TATrader	Commodities	3	13th June 2005 12:53 AM
Introduction of futures and options contracts on BANKNIFTY	TATrader	Derivatives	0	11th June 2005 03:23 PM